It is understood that the government has scrapped a multimillion pound programme to build 50 community hospitals.

Last year Patricia Hewitt, the health minister, pledged £750m to build the hospitals, which would have provided in-patient beds for the elderly and people with chronic conditions.

However, it is thought that out of the 50 hospitals only one has received funding, along with three smaller clinics.

The news will come as blow to contractors, which were hoping the community hospital programme would compensate for the reduced levels of funding in other healthcare schemes such as Lift and PFI.

Andy Burnham, junior health minister, denied there had been a target to build a set number of community hospitals.